Mika Skippari Aalto University School of Economics

1. Business-Society Relations in Retail Value Chain (23E54000, 6cr)17.9.2012Corporate social responsibility Mika Skippari Aalto University School of Economics

2. CSR: what does it mean? • Different terms: Corporate (social) responsibility, corporate citizenship, corporate philantrophy… • Wide definition (Steiner & Steiner 2009) • Covers firm’s market actions, externally mandated actions and voluntary actions • More narrow, generally accepted definition • Practices and actions of corporations that benefit society (e.g. improve workplace conditions; environmental health) in ways that go above and beyond what companies are legally required to do • Voluntary action of firms, seeking to adapt to values and norms of society • Obying the law is not responsibilty action by definition!!

3. Changing views of CSR: towards a legitimate corporate activity • In 1977, less than half the Fortune 500 firms even mentioned CSR in their annual reports. • By the end of 1990s, close to 90% of Fortune 500 firms embraced CSR as an essential element in their organizational goal • Since 2000 there has been a clear tendency towards activity-based thinking in CSR: Firms attempt to implement its CSR principles to all levels of its operations, ranging from sourcing to strategic planning and marketing • CEO of HP-Compaq Carly Fiorina (2001): “New reality of business has emerged” • CEO of General Electric Jeffrey Immelt (2004): “The world has changed”

4. Increasing attention towards CSR among top managers • 70 per cent of CEOs in global firms thought CSR is vital to company’s survival (2002 survey of CEOs in global firms) • 91 per cent of CEOs believe CSR creates shareholder value (2004) • According to a survey targeted to CEOs of international firms (2007) only 4 per cent of the top managers perceive CSR as a waste of time and money. • A survey targeted to Finnish CEOs (2007) shows the importance of social responsibility in their managerial work. • Motivating personnel was considered the most important task of managers (83 per cent)

5. Increasing emphasis on CSR among global firms Source: Economist 17.1.2008

6. Increasing public interest towards CSR • Visibility in media has increased remarkably (Echo Research 2003): • Articles related to CSR increased from 377 to 2906 between 2000-2002 • Growth rate was 407 % in 2001-2002 • 30 000 sites and15 million internet pages that adressess CSR issues • The number of social funds increased tenfold 1995-2005 • However, CSR is not a totally new phenomenon!

7. Development of CSR in scientific discussion • First signs of CSR issues in the 1950s • Howard Bowen (1953) ”Social responsibilities of the businessman” • Responsibility as a tool to fix the errors in liberal economic system • Milton Friedman, New York Times 1970: “The social responsibility of business is to increase its profits”. • Danger of managerial opportunism (greenwashing) • Managers are not capable of dealing with social issues • Opposed csr that is not related to economic benefits (business case for CSR) • Enlightened self-interest (Baumol 1970, A new rationale for corporate social policy) in the 1970s • Long-term interest of corporations is to advance societal welfare • Carroll (AMR, 1979): corporate social performance • Expanded view on responsibility: economic, ethical and legal perspective • Strategic CSR in the 1990s: seeking for business case for CSR • Integrating stakeholder management to csr (Clarkson 1995; Jones 1995)

8. CSR: Two approaches (David Vogel 2006, The Market for Virtue) • Doing good to do good • Aims at charity and goodwill, corporatation does good because it feels it is the right thing to do (socially) • Altruistic, ethical perspective: the aim is to enhance the well-fare of society and communities, although it might not necessarily lead to improved economic performance • Doing well by doing good • Strategic approach, in which firms engage in CSR in order to improve societal well-being but also a firm’s competitive position • CSR has to create economic benefits and improve competitive advantage • Are these approaches contradictory? Is It possible for a firm to try to achieve both goals simultaneously?

9. The subjective nature of CSR • Windsor (2006) refers to CSR as an‘embryonic and contestable concept. • CSR is ‘appraisive or ‘valued, i.e. as few firms would claim to be ‘socially irresponsible the concept is not (just) an empirical one, but is inherently value-laden • Contest within societies what is determined as responsible behavior • Legal boundaries are clear whereas informal norms and values are subject to opposing views • CSR is ‘internally complex entailing the balancing of economic, legal, ethical and social responsibilities • Organizations are like human beings: selectively responsible (case by case)

10. CSR: a contradictory concept • Critical view on CSR arguesthatmoral and ethicalissuesshouldnotbeassociated with business activities • Legal and economicresponsibility of a firm is to makeprofits • There is constant and ongoingdiscussionamongdifferentinterestgroupswithinsocietieswhatare the societalvalues and what is considered as responsiblebehaviour • Firmsaremembers of society, and theycan’tsurvive in the long runiftheycontradictsocietalvalues • Butwhytherestillexisttobaccofirmsorpayday loan firms???

11. Different approaches to CSR among interest groups • Perception of what is CSR varies across different actors. Thus, CSR is not easily codified or defined. Government, business, NGOs, consultants, shareholders, employees and consumers all tend to define CSR in different ways whether their intention is to endorse, encourage, manage or criticize it. • Firms tend to emphasise the priority of economic responsibility • NGOs emphasise the role of social and environmental responsibilities • Unions and politicians are worried about employment issues • A key challenge for corporations: How much is enough? How responsible a firm has to be?

12. Whole Foods: is it responsible firm or not? • Appriciated by markets • U.S. based grocery chain that has focused on selling natural and organic food products • Fast growing, Fortune 500 company • Slogan: ”Whole Foods, Whole Planet, Whole People” • BUT activists claim: • ”Only” one third of the products are organic • Aggressive growth has led many small organic stores to bankrupcy • Opposes fiercely unions • Nick name ”Whole Paycheck”, ”Whole-Mart”

13. Wal-Mart: responsible or not? • In early 1990s Wal-Mart was a small grocery retailer in US market. Market was dominated by established retailers such as (Albertsons, Safeway, Kroger, K-Mart). • Wal-Mart started to develop the concept of Supercenters, which sold not only groceries but also many fast moving consumer goods (FMCG). • Rapid expansion of supercenters: 9 supercenters in 1990, 888 supercenters in 2000. • Wal-Mart revolutionized grocery markets in US, supercenters became the dominant business model, price competition increased. • Wal-Mart was a vaunted example of economic responsibility: “most admired company in America” by Fortune, fast growing, biggest retailer in the world (1,8 million employees), over 7 bln customers in a year.

14. Wal-Mart: responsible or not? • Increasing criticism towards W-M during the last decade • Over 30 local grocery chains went bankcrupt in US, complaining about the hard competition by W-M • Critical discussion about Wal-Mart effect: huge effects on local, national and global level • Wages below minimum level, misconduct of employees, aggressive price competition towards suppliers, misuse of dominant market position, proactive political influence (e.g., election funding) • Fishman, C. 2006. The Wal-Mart Effect and a Decent Society: Who Knew Shopping Was So Important? Academy of Management Perspectives, 20(3): 6-25. • Freeman, R. E. 2006. The Wal-Mart Effect and Business, Ethics, and Society. Academy of Management Perspectives, 20 (3): 38-40. • Recently W-M has tried to recover its reputation • See: Hemphill (2005), Rejuvenating Wal-Mart’s reputation. Business Horizons (2005) 48, 11—21.

15. Social enterprise: Responsibility creates new forms of businesses and business models • Social enterprise or a Non Profit Distributing Organisation (NPDO) is a form of business structure where, although profit is still sought, any profit is reinvested in services or business growth rather than being distributed to shareholders. • The primary aim is to seek societal and environmental benefits • However, they are not charity organizations, they are run like businesses • Useful links • http://www.sosiaalinenyritys.fi/sofi_english • http://www.socialenterprise.org.uk/

16. Free-rider dilemma in conducting CSR • Free-riderproblem: as CSR has a character of ”publicgood”, a firm’s management mightponder, whytheircompanyshouldpay for the costs of producing social benefits (e.g., education to childen of developingcountries), whiletheirrivalsmightnotnecessarilydothat, butenjoys the similarbenefits • One way to avoidthis dilemma is to integrate CSR and politicalstrategy • E.g., Starbucksoffershealthsecurity for allemployees, and at the sametimelobbies for national healthcarelegislationthatwouldrequireallfirms to offerhealtcare to theiremployees • Nike lobbies for international standards in employeepolicies, and hasterminatedits business relationships with allsuppliersthatusechildlabor • The aim is to getridoff the disadvantagecausedbytheircsractivities

17. Market forces of CSR: Civil regulation • Various market forces, in the form of civil regulation, encourage and limit the practise of CSR • Civil regulations = Consumer demand for responsibly made products, actual or threatened consumer boycotts, pressure from socially responsible investors, values held by managers / employees • However, civil regulation cannot force companies to make unprofitable but socially responsible decisions, whereas government regulation can!

18. Key challenge to CSR: Contradiction between words and actions Lähde: Just good business. Economist 17.1.2008

19. Contradiction between words and actions Whythere is ”Greenwashing” • Implementation of corporatevalues to alllevels of organization is challenging and difficult • Resistance to change: Establishedways of conductaredifficult to change • Market forces (e.g., costpressures in sourcing) mightbe in contradiction with ideals of responsibility • Twistedlogic of marketing: firmshaveincentive to provide an image as a responsibleactor • And finally, subjectiveperceptions of values and csr in general lead to contradictions

20. Corporate reputation and csr • Irresponsible activity or perceived contradiction between words and actions will harm corporate reputation • Image is important in reputation-based issues: the balance between words and actions (in both positive and negative sense) • It is not necessarily enough for a firm’s reputation that it perceives itself as a responsible actor: the opinion of key stakeholders is what counts!

21. Balance between words and actions Underuse of potential + + - Ideal, balance Lots of csr activity + + + Neutral, no threat + - Dangerous - - - Little csr activity Promise little csr Promise a lot csr